Your Essential Guide to Startup Funding Options
Starting a new business can be an equally exciting and stressful process.
As much as you want to get your idea up and running, you need to plan carefully. Everything from your first group of employees to deciding on the brand and logo matters.
However, it can be confusing to know where to get started.
When it comes to funding, there are a number of ways to gather the money you need to get your startup running.
Here is an in-depth look at the most common startup funding options available to you.
Bootstrapping is a term coined from “pulling yourself up by the bootstraps”, meaning you’re deciding to be your own source of startup funding.
One who goes the bootstrapping route either has no major commitments (like another job or a family to support) or enough money saved to get to work. Little distractions and plenty of liquidity are the best signs of success here.
If you choose to go your own way, prepare for the ups and downs.
The pros of bootstrapping include being your own boss, calling all the shots, and a tunnel vision of focus. You are relying only on yourself, which means being forced to optimize margins as much as possible. This kind of awareness of your bottom line from the start is a good skill to learn and maintain as your startup grows.
However, this kind of freedom and motivation come at a cost.
Be prepared to deal with less money than you would have with other startup funding options.
Also, start building your network to refrain from being left with no one to consult. Many times, your investors become your mentors. Without them, you will need to actively seek counsel from other sources.
For those with the confidence in going it alone, but who still need a little boost, crowdfunding is a great option.
Crowdfunding puts the power of money making in your control, while you ask the support of a large network. It gives many family and friends the ability to add ten dollars here or maybe a hundred there.
Over time, what may not seem like much can quickly add up. This is thanks to the small contributions of many, not the large contributions of few.
A system like this allows you to express your thanks to those who support without feeling as if you owe a debt. You don’t have the thought of paying someone back hanging over you, which means you can go all-in on building your startup.
Although crowdfunding is one of the more immediately accessible forms of startup funding, sometimes you just need an angel.
Finding an angel investor takes a little bit more time than starting an online donation campaign. However, it pays off significantly, and sometimes you only need one to get the money you need. Although it is possible to work with more than one.
Angel investors are wealthy and established individuals looking to support the up-and-coming entrepreneurs of our times.
They are often people who have been in your startup shoes before, who now want to pay back their successes. Your angel may even be a relative or close friend.
Before you find the right investor, you need to understand the legal obligations formal startup funding options imply.
The National Angel Capital Organization requires all investors to be accredited members of the organization. The only exception is taking money from a direct relative, like a parent or grandparent.
Otherwise, you and your investor need to follow the necessary regulations.
As a borrower, you are expected to either share equity in the company or offer ownership debt. Keep in mind this is different from a loan. It means you have a long-term commitment to not only return the investment, but to give profit as well.
Profit often means a portion of earnings over time, which you will have to account for yearly.
The Canada Small Business Financing Loan
The CSBF offers many startup funding options for entrepreneurs.
This type of financing is available to businesses earning less than $10 million. It does not matter if you are a sole proprietor, corporation, or partnership. If you have a valid funding need, you can apply.
Valid needs include purchasing fixed assets like raw materials or land and property. Needs also refer to installing, renovating, or investing in modern equipment.
The main limitations to be aware of are for purchases of land, at least 50% of the floor space has to be for business operations. Also, you cannot use a CSBF loan to finance working capital or to retrieve assets from a holding company.
Still, this loan is worth looking into. It can give small businesses in Canada up to $1 million in funding to make your startup dreams come true.
A registration fee will apply as well as an interest rate and lender fees, but these tend to be low and reasonably set. Business owners can also work with their lender to improve rates as they make payments.
Debt and Equity
Other startup funding options include other government loans, home equity loans, or opening stock.
Canada offers a Self-Employment Program for new entrepreneurs looking to grow their business capital. This gives you access to professional training in the world of business. The program includes coaching and income support from established personnel in your field.
It provides something more valuable than money – knowledge. Such resources give you the means to build your business from the start and tools to keep for the rest of its life cycle.
Home Equity Loans
Are you confident enough in your startup idea to put your home on the line?
This is not a bet. This is what real people do to make real, big leaps in their business growth. It’s called a home equity loan.
A home equity loan is determined by the current value of your home and the amount still owed on the mortgage.
It basically gives you the entire difference to put into your startup. Moving forward, rather than paying off your mortgage, you make similar payments to a new lender. The money borrowed is due on average within fifteen years, which is plenty of time to watch your business soar.
Equity in the form of stock is one of the least risky startup funding options there are.
It appeals to entrepreneurs because it does not tie them down to a debt, and has practically nothing to do with personal credit. However, opening stock is essentially inviting partners to join your startup.
A stock owner may try to have their hand in operations as well as your pocket. They can influence decisions and ask for more control as the company grows, which is something to watch out for.
Before opening stock, ask yourself how bad you want to be the boss. You may find the answer to be the deciding factor between shaking hands or looking at other startup funding options.
Service swapping is one of the most informal, yet effective startup funding options.
It can be as casual as asking your friend who is a web designer to build your site in exchange for something simple. Or, you can put your startup’s services to work by trading a package you offer for branding and logo designs.
The sky is the limit when it comes to this kind of transaction, because it rarely has to do with money.
Service swapping allows you to get creative with the use of all your skills, not just the ones in your startup toolbox. Plus, it builds business for friends and family as well, which means everyone wins.
If you happen to get connected to a necessary resource outside of your immediate network, be sure to check for and give signs of good faith.
Often times a referral will be happy to collaborate, but they may expect more in the future. This can be as simple as sharing a good review, or more binding like making a commitment to repeat business.
Be sure to check the quality of anyone you decide to swap services with. Look at their portfolio, ask about past clients, and set clear expectations. These include anything from a timeline of work to what happens after the initial swap.
The more trust you build by swapping services, the more established your reputation becomes. This can build your network more than you might expect, and it will definitely help gain credibility as you market your startup.
After weighing all your startup funding options, the real work begins.
Getting cash-in-hand is one thing, and making the right decisions with it is another. You also have to consider how you invest your time and energy as well.